A recent cover of Newsweek magazine reads “We Are All Socialist Now:” ; the latest cover of The Economist magazine reads “The Return of Economic Nationalism” the illustration on which has an arm reaching out of a grave surrounded by tombstones with inscriptions that refer to Protectionism and the Great Depression. The covers of the two periodicals have captured the fears of a great deal of discerning citizens, specifically regarding the role of government in the marketplace. As I pen this article our President is preparing to sign the American Recovery and Reinvestment Act, a Keynesian style economic strategy based in a conviction that only an active government response can reverse the consequences of predatory private sector decisions and thereby stabilize the economy. Accordingly advocates of this strategy have overwhelmed the public with urgent messages of the dire need for drastic government solutions to our current economic downturn.

During Obama's recent promotion of his so-called stimulus plan he made the ridiculous comparison of our current economic situation with that of the Great Depression. He said, "We also inherited the most profound economic emergency since the Great Depression." He has in fact made this comparison several times now – unchecked. The facts are that unemployment figures have not reached the levels of the early 1980s, let alone the 1930s. Interestingly, current unemployment numbers are at 7.6 percent, still lower then the 7.8 percent from 1992 and much lower then the jobless rate of 10.8 percent from 1982. We still don't know what matrix Obama is using to make his comparison to the Great Depression – a time in which unemployment numbers ranged for several years from 25 percent to close to 30 percent. My suspicion is he makes this comparison to justify and sell his FDR model solution in which he uses debt-financed public spending to infuse the market with capital. However risky, the hopes are that government reduction of interest rates coupled with investment in infrastructure will spark a chain of stimulating economic events that include job creation and consumer spending.

But there remains an elephant in the room that nobody seemed particularly interested in discussing – the GOP free market alternative to Mr. Obama’s plan. The Republicans presented an economic strategy that relies on the reduction of regulation and cost to stimulate corporate investment thereby reviving the economy. The republican plan relies on cutting the lowest individual tax rates from 15 percent to 10 percent and from 10 percent to five percent, tax deductions for small businesses, and a ban on tax increases to pay for new spending which should be paid for by cutting spending in other areas. It would also make unemployment benefits tax free, and Isakson’s 15,000 dollar home-buyer tax credit. I would have added a Congressional commitment to reducing and then holding the federal business tax rate to the lowest ten percentile in the world for the next ten years to send the signal that America is the most attractive place to invest over the next decade. Countries have to be tax competitive to attract and retain companies and industries. It is not a coincidence that Qatar, who has the fastest growing economy in the world, also is one of the two least-taxed sovereign countries in the world. The other is Bahrain who has the freest economy in the Middle East (25th in the world) and is the world’s fastest growing financial center. Business freedom, fiscal freedom, monetary freedom, and especially financial freedom make a country globally competitive and provides for commercial advantage.

The Federal government currently competes with States for tax revenue, increasing the take home pay of working Americans by decreasing their federal tax burden would provide significant stimulus to families but also buttress States ability to care for the unique challenges they face. Committing to the extensive Bush tax cuts; making unemployment benefits tax free; cutting or significantly reducing the capital gains tax, and revisiting those market rules that have slowed or halted lending and spending are all free market, capitalist alternatives to an active government presence in our marketplace.

Mr. Obama will finance his nearly 1 trillion dollar Keynesian style economic strategy by incurring foreign held debt – likely from China – and will soon add 2 trillion dollars of debt to that in his soon to be released bank rescue plan. The inherent reality of these so-called stimulus plans is that government cannot infuse the market with capital until it first draws out that capital from the market through its working citizens. Far from imposing itself more into the market, stimulating the economy will require the Government to remove itself to a greater extent from the market.

Cory Ruth, RBA's Political Analyst